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                                                                   EXHIBIT 10.2

                                 CHATTEM, INC.
                     NON-STATUTORY STOCK OPTION PLAN - 1998

1.  PURPOSE

    The Chattem, Inc. Non-Statutory Stock Option Plan - 1998 (the "Plan") is 
designed to enable officers and key management employees of Chattem, Inc. 
(the "Company") and its Subsidiaries to continue to acquire shares of the 
Company's common stock and thus to share in the future success of the 
Company's business. Accordingly, the Plan is intended as a further means not 
only of attracting and retaining outstanding management personnel, but also 
of promoting a closer identity of interest between key management employees 
and the Company and its shareholders.

2.  DEFINITIONS

    Unless the context clearly indicates otherwise, the following terms, when 
used in the Plan, shall have the meanings set forth in this Section 2.

    (a)  "Beneficiary" means the person or persons designated in writing by 
         the Optionee or, in the absence of such a designation or if the 
         designated person or persons predecease the Options, the Optionee's
         Beneficiary shall be the person or persons who acquire the right
         to exercise the Option by bequest or inheritance. In order to be
         effective, an Optionee's designation of a Beneficiary must be on
         file with the Committee before the Optionee's death. Any such
         designation may be revoked in writing and a new written designation
         substituted therefor at any time before the Optionee's death.

    (b)  "Board of Directors" or "Board" means the board of directors of the
         Company.

    (c)  "Change in Control" means:

          (i)    Change of 1/3 or more of the directors of the Company within
                 any twelve (12) month period; or

          (ii)   Change of 1/2 or more of the directors of the Company within
                 any twenty-four (24) month period; or

          (iii)  Acquisition by any person of the ownership of or right to 
                 vote thirty-five percent (35%) or more of the Company's 
                 outstanding voting stock. For purposes of this paragraph 
                 (iii): (A) "person" shall mean any person, corporation, 
                 partnership or other entity and any affiliate or associate
                 thereof and (B) "affiliate" and "associate" shall have the
                 meanings given to them in Rule 12b-2 promulgated under the
                 Exchange Act.


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    (d)  "Code" means the Internal Revenue Code of 1986, as amended from time
         to time.

    (e)  "Committee" means the Compensation Committee of the Board of 
         Directors. The Committee shall consist of three (3) directors of the
         Company who are not employees of the Company and its subsidiaries.
         No member of the Committee shall be eligible to participate in the 
         Plan. Each member of the Committee shall be a "disinterested person,"
         as such term may be defined for purposes of Rule 16b-3 or its 
         successors under the Exchange Act.

    (f)  "Company" means Chattem, Inc., a corporation incorporated under the 
         laws of the State of Tennessee.

    (g)  "Disability" means a disability that entitles the Optionee to 
         benefits under the Company's Long-Term Disability Plan, as amended 
         from time to time.

    (h)  "Exchange Act" means the Securities Exchange Act of 1934, as amended.

    (i)  "Fair Market Value" means the closing sale price on the last business
         day prior to the date on which Fair Market Value needs to be 
         determined as reported in the Wall Street Journal, or the average
         of the high and low bids on such day if no sale exists.

    (j)  "Option" means an option to purchase a share or shares of the 
         Company's common stock.

    (k)  "Option Agreement" means the written agreement to be entered into by 
         the Company and the Optionee, as provided in Section 7 hereof.

    (l)  "Optionee" means a person to whom an Option has been granted under
         the Plan.

    (m)  "Retirement" means retirement from employment with the Company and 
         its Subsidiaries, as determined by the Committee in its sole
         discretion.

    (n)  "Shares" means shares of the Company's common stock.

    (o)  "Subsidiary" means a subsidiary corporation as defined in Section 
         425(f) of the Code (or a successor provision of similar import).

    (p)  "Term" means the period during which a particular Option may be
         exercised in accordance with Section 10 hereof.


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3.  EFFECTIVE DATE OF THE PLAN

    The Plan shall become effective when adopted by the Board of Directors 
and an appropriate registration statement filed with the Securities and 
Exchange Commission becomes effective; provided, however, that if the Plan is 
not approved by the holders of a majority of the outstanding Shares present, 
or represented, and entitled to vote at the meeting before the first 
anniversary of its adoption by the board, the Plan and all Options granted 
under the Plan prior to such anniversary shall be null and void and shall be 
of no effect.

4.  NUMBER AND SOURCE OF SHARES SUBJECT TO THE PLAN

    (a)  The Company may grant Options under the Plan for not more than Three
         Hundred Fifty Thousand (350,000) Shares (subject, however, to 
         adjustment as provided in Section 14 hereof) which shall be provided 
         by the issuance of Shares authorized but unissued.

    (b)  In the event that an Option shall for any reason lapse or be 
         terminated without being exercised in whole or in part, the Shares
         subject to the Option shall be restored to the total number of 
         Shares with respect to which Options may be granted under the Plan, 
         but only to the extent that the Option has not been exercised 
         previously.

5.  ADMINISTRATION OF THE PLAN

    (a)  The Plan shall be administered by the Committee.

    (b)  The Committee shall adopt such rules and regulations (including
         amendments thereto) as it may deem proper; provided, however, that
         it may take action only upon the agreement of a majority of its
         members then in office. Any action that the Committee may take
         through a written instrument signed by a majority of its members 
         then in office shall be as effective as though taken at a meeting
         duly called and held.

    (c)  The powers of the Committee shall include plenary authority to
         interpret the Plan, and, subject to the provisions hereof, the 
         Committee shall determine the persons to whom Options shall be 
         granted, the number of Shares subject to each Option, the Term of
         each Option, the date on which each Option shall be granted, and 
         the provisions of each Option Agreement.

6.  PLAN PARTICIPANTS ELIGIBLE TO RECEIVE OPTIONS

    (a)  Options may be granted under the Plan to key management employees 
         of the Company or any Subsidiary, including officers and directors
         who, in the judgment of the 


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         Committee, have a substantial impact on the Company's attainment of 
         corporate goals. All determinations by the Committee as to the 
         identity of the persons to whom Options shall be granted hereunder 
         shall be conclusive. No director who is a member of the Committee 
         shall be entitled to participate in the Plan.

    (b)  An individual employee may receive no more than one Option hereunder
         during any three (3) year period. The grant of an Option in any year
         shall not give the Optionee any right to Options in future years or
         any right to be retained in the employ of the Company or its 
         Subsidiaries.

7.  OPTION AGREEMENTS

    (a)  No Option shall be exercised by an Optionee unless the Optionee shall
         have executed and delivered an Option Agreement.

    (b)  Appropriate officers of the Company are hereby authorized to execute
         and deliver Option Agreements in the name of the Company as directed 
         from time to time by the Committee.

8.  NON-STATUTORY OPTIONS

    It is intended that the Options granted hereunder shall not be "incentive 
stock options" within the meaning of the Code.

9.  OPTION PRICE

    The Option price to be paid by the Optionee to the Company for each Share 
purchased upon the exercise of the Option shall be determined by the 
Committee and shall not be less than the Fair Market Value of the Share on 
the date the Option is granted, but may exceed Fair Market Value in the sole 
discretion of the Committee.

10.  TERM OF OPTION; EXERCISE OF OPTION

     (a)  Each Option granted under the Plan shall be exercisable as
          provided in this Section 10. In no event may an Option be
          exercised before the approval of the Plan by the holders of a 
          majority of the outstanding Shares present, or represented,
          and entitled to vote at the meeting within the period specified
          by Section 3 hereof. The Term of each Option shall end (unless the
          Option shall have terminated earlier under any other provisions
          of the Plan) on a date ten (10) years from the date of grant of 
          the Option.


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    (b)  Each Option shall become exercisable and vested with respect to 
         twenty-five percent (25%) of the Shares purchasable thereunder on 
         the first anniversary of the date of the grant of the Option. The 
         option to purchase an additional twenty-five percent (25%) of such 
         Shares shall become exercisable and vested, on a cumulative basis, 
         on each of the three succeeding anniversaries of the date of the 
         grant of the Option, so that four (4) years from the date of such 
         grant the option to purchase all such Shares shall have become 
         exercisable and vested. Notwithstanding the foregoing vesting 
         schedule (i) each Option shall become exercisable in full 
         immediately upon a Change in Control and (ii) upon the death, 
         disability or retirement of an Optionee or termination of an 
         Optionee's employment pursuant to Section 12(e), any Option held by 
         such Optionee shall be exercisable in full in accordance with the 
         provisions of Section 12. When exercising an Option, the Optionee 
         may purchase less than the full number of Shares then available 
         under the Option.

    (c)  Options shall be exercised by delivering or mailing to the Committee:

         (1)     a notice, in the form and in the manner prescribed by the 
                 Committee, specifying the number of Shares to be purchased, 
                 and

         (2)     payment in full of the Option price for the Shares in cash 
                 and/or by the tender of Shares (by delivering the 
                 appropriate stock certificates) to the Committee; provided, 
                 however, that (i) the Committee shall determine acceptable 
                 methods for tendering shares to exercise an Option under the 
                 Plan, and may impose such limitations and prohibitions on 
                 the use of Shares to exercise an Option as it deems 
                 appropriate and (ii) the Committee may permit Optionees to 
                 pay for any Shares subject to an Option by delivering to the 
                 Committee a properly executed exercise notice together with 
                 a copy of irrevocable instructions to a broker to deliver 
                 promptly to the Company the amount of sale or loan proceeds 
                 to pay the purchase price.

                 The Company may enter into agreements for coordinated 
                 procedures with one or more brokerage firms in connection 
                 with exercises of Options. The value of any Shares tendered 
                 in accordance with this Paragraph (c) shall be determined on 
                 the basis of their Fair Market Value on the date of exercise.

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    (d)  Subject to the provisions of Section 11(a) hereof, upon receipt of 
         the notice of exercise and upon payment of the Option price, the 
         Company shall promptly deliver to the Optionee a certificate or 
         certificates for the Shares purchased, without charge to the 
         Optionee for issue or transfer tax.

11. CONDITIONS ON EXERCISE

    (a)  The exercise of each Option granted under the Plan shall be subject 
         to the condition that if at any time the Company shall determine in 
         its discretion that the satisfaction of withholding tax or other 
         withholding liabilities, or that the listing, registration or 
         qualification of any Shares otherwise deliverable upon such exercise 
         upon any securities exchange or under any State or Federal law, or 
         the consent or approval of any regulatory body, is necessary or 
         desirable as a condition of, or in connection with, such exercise or 
         the delivery or purchase of Shares, then in any such event such 
         exercise or payment shall not be effective or be made unless such 
         withholding, listing, registration, qualification, consent or 
         approval shall have been effected or obtained free of any conditions 
         not acceptable to the Company. Any such postponement shall not 
         extend the time within which the Option may be exercised; and neither 
         the Company nor its directors or officers shall have any obligation 
         or liability to the Optionee or to a Beneficiary with respect to any 
         Shares as to which the Option shall lapse because of such 
         postponement.

    (b)  All Options granted under the Plan shall be non-transferable other 
         than by will or by the laws of descent and distribution in 
         accordance with Section 12(a) hereof, and an Option may be exercised 
         during the lifetime of the Optionee only by the Optionee.

         Further, to the extent required by Rule 16-3 or its successors 
         under the Exchange Act, Shares acquired by persons subject to 
         Section 16 of the Exchange Act may not be transferred for at least 
         six (6) months after the later of (i) the grant of the Option pursuant
         to which such Shares were acquired or (ii) approval of the Plan by 
         the holders of a majority of the outstanding Shares present, or 
         represented, and entitled to vote at the meeting.

    (c)  Subject to the provisions of Section 11(b), upon the purchase of 
         Shares under an Option, the stock certificate or certificates may, 
         at the request of the Optionee (or the Optionee's Beneficiary, where 
         the Option is exercised by the Beneficiary), be issued in the name 
         of the

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         Optionee (or Beneficiary) and the name of another person as joint 
         tenants with the right of survivorship.

12. EXERCISE OF OPTION AFTER DEATH, DISABILITY, RETIREMENT, OR OTHER 
    TERMINATION OF EMPLOYMENT.

    (a)  Death. If an Optionee's employment with the Company or a Subsidiary 
         shall cease due to the Optionee's death, any Option held by the 
         Optionee on the date of the Optionee's death may be exercised only 
         with three (3) years after the Optionee's death and only by the 
         Optionee's Beneficiary. If an Optionee shall die within three (3) 
         years after cessation of employment while the Option is exercisable 
         pursuant to Paragraph (b) below, or if the Optionee shall die within 
         three (3) years after cessation of employment while the Option is 
         exercisable pursuant to Paragraph (c) below, any Option held by the 
         Optionee on the date of this death may be exercised after the 
         Optionee's death only within the remainder of the period prescribed 
         by Paragraph (b) or Paragraph (c), as the case may be, and only by the
         the Optionee's Beneficiary. Notwithstanding the foregoing, in no 
         event shall the Option be exercisable after the expiration date 
         thereof specified in the Option Agreement.

    (b)  Disability. If an Optionee's employment with the Company or a 
         Subsidiary ceases due to Disability, the Optionee may exercise the 
         Option at any time within three (3) years after the Optionee shall 
         so cease to be an employee; provided, however, that in no event 
         shall the Option be exercisable after the expiration date thereof 
         specified in the Option Agreement.

    (c)  Retirement. If an Optionee's employment with the Company or a 
         Subsidiary ceases due to Retirement, the Optionee may exercise the 
         Option at any time within three (3) years after the Optionee shall 
         so cease to be an employee; provided, however, that in no event 
         shall the Option be exercisable after the expiration date thereof 
         specified in the Option Agreement.

    (d)  Leave of Absence. The Committee shall have the sole authority to 
         determine whether, in any particular case, a leave of absence shall 
         result in a termination of employment for purposes of this Section 12.

    (e)  Divestiture. If an Optionee's employment with the Company or a 
         Subsidiary ceases due to divestiture of a Subsidiary or other 
         distinct business unit of the Company, the Optionee may exercise the 
         Option at any time within ninety (90) days after the divestiture, 
         provided that the Optionee is an employee on the actual date of the
         divestiture; and further provided, that in no event

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         shall the Option be exercisable after the expiration date thereof 
         specified in the Option Agreement.

    (f)  Termination for Other Reasons. Upon termination of an Optionee's 
         employment with the Company or a Subsidiary for any reason other 
         than those specified in a Paragraphs (a) through (e) above, the 
         Optionee may exercise the Option (to the extent vested) at any time 
         within thirty (30) days after such termination; provided, however, 
         that in no event shall the Option be exercisable after the 
         expiration date thereof specified in the Option Agreement.

13. STOCKHOLDER RIGHTS

    No person shall have any rights of a stockholder by virtue of an Option 
Except with respect to Shares actually issued to him or her, and the issuance 
of Shares shall confer no retroactive right to dividends.

14. ADJUSTMENTS FOR CHANGES IN CAPITALIZATION

    In the event that there is a change in the Shares through merger, 
consolidation, reorganization, recapitalization, or otherwise, or if 
there shall be any dividend on the Company's Shares, payable in such Shares, 
or if there shall be a stock split or combination of Shares, the Aggregate 
number of Shares available for Options, the number of Shares subject to 
outstanding Options, and the Option price per shares of each outstanding 
Option shall be proportionately adjusted by the Committee as it deems equitable
in its absolute discretion, to prevent dilution or enlargement of the rights of
the Optionee; provided, that any fractional Shares resulting from such 
adjustments shall be eliminated. The Committee's determination with respect 
to any such adjustments shall be conclusive.

15. EFFECT OF MERGER OR OTHER REORGANIZATION

    If the Company shall be the surviving corporation in a merger or other 
reorganization, Options shall extend to stock and securities of the Company 
to the same extent that a holder of that number of shares immediately before 
the merger or consolidation corresponding to the number of Shares covered by 
the Option would be entitled to have or obtain stock and securities of the 
Company under the terms of the merger or consolidation.

16. TERMINATION, SUSPENSION OR MODIFICATION OF PLAN

    The Committee may at any time terminate, suspend or modify the Plan, 
except that the Committee shall not, without the authorization of the holders 
of a majority of the Company's outstanding Shares at a shareholders' meeting 
duly called and held, change (other than through adjustment for changes in 
capitalization

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as provided in Section 14 hereof): (a) the aggregate number of Shares with 
respect to which Options may be granted; (b) the class of persons eligible 
for Options; (c) the Option price; or (d) the maximum duration of the Plan. 
No termination, suspension or modification of the Plan shall adversely affect 
any right acquired by an Optionee, or by any Beneficiary, under the terms of 
an Option granted before the date of such termination, suspension or 
modification, unless such Optionee or Beneficiary shall consent; but it shall 
be presumed conclusively that any adjustment for changes in capitalization in 
accordance with Section 14 hereof does not adversely affect any such right.

17. APPLICATION OF PROCEEDS

    The proceeds received by the Company from the sale of Shares under the 
Plan shall be used for general corporate purposes.

18. DURATION OF THE PLAN

    Unless sooner terminated in accordance with Section 16 hereof, the Plan 
shall remain effect for a period of five (5) years from the date of its 
adoption by the Board of Directors. Expiration of such five (5) year period 
shall not affect the vesting of previously granted Options pursuant to 
Section 10(b) hereof.

19. COMPLIANCE WITH RULE 16b-3

    With respect to persons subject to Section 16 of the Exchange Act, 
transactions under the Plan are intended to comply with all applicable 
conditions of Rule 16b-3 or its successors under the Exchange Act. To the 
extent any provision of the Plan or action by the Committee fails to so 
comply, it shall be deemed null and void, to the extent permitted by law and 
deemed advisable by the Committee.

20. GOVERNING LAW

    The Plan shall be construed and its provisions enforced and administered 
in accordance with the laws of the State of Tennessee except to the extent 
that such laws may be superseded by any Federal law.





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